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Manhattan's D.A. Morgenthau covered up the drug and terror ties of American Bank &Trust

by David Goldman and Kathy Burdman

Federal and state investigators have renewed examination of world figure David Graiver purchase American Bank and New York District Attorney 's role in Trust in 1975; covering up 'S most spectacular case of dirty • Israeli arms merchant Shaul Eisenberg, a close asso­ banking, the crash of American Bank and Trust Co. in 1976. ciate of Israeli Defense Minister Ariel Sharon, and the con­ Morgenthau took a case of blatant criminal fraud out of the troller of illegal sales of Israeli-produced weapons to Libya, hands of federal law enforcement agencies, and prosecuted Central America, and Khomeini's Iran; and two minor officers of the failed bank for minor regulatory • The Recanati financial group of Israeli Discount Bank, violations. Morgenthau protected top officers in the bank, thefinanciers of Shaul Eisenberg, whose American frontman including future Carter administration Commerce Secretary John Samuels helped David Graiver loot American Bank Phillip Klutznick, the bank's president, and-incredibly­ and Trust of $3 million of depositors' money. refused to touch the man who had arranged the final looting The central role of John Samuels in the American Bank of the bankrupt institution, New York financier John Samu­ and Trust case puts the spotlight on Morgenthau' s coverup: els. Samuels had been the biggest contributor and chief fun­ Samuels, a fly-by-night coal financier and erstwhile big draiser for Morgenthau's 1974 election campaign for the spender on the New York cultural scene, was the principal District Attorney'soffice in the firstplace. financierof Morgenthau 's 1974 election campaign asNew The implications of the American Bank and Trust case, York District Attorney! According to an exhaustive dossier however, go beyond Morgenthau's personal conflict-of-in­ on the bank scam assembled by EIR, Samuels funded the terest, the subject of a series of Barron's weekly magazine Morgenthau campaign at the same time he was obtaining articles by reporter Richard Karp. Renewed interest in the loans illegally from American Bank and Trust! Yet Sam­ affair, which brought together top operators of illegal arms uels, who helped Argentine financier Graiver loot American traffic from Argentina to the Eastern Mediterranean, has Bank and Trust, signing his name to checks Graiver used to emerged at the same time thatthe Italian authorities have shut funnel funds out of the bank, was never prosecuted by Mor­ down an arms-and-narcoticsnetwork that controlled the en­ genthau. Instead, Samuels, whose borrowings from Ameri­ tire heroin flow out of the Eastern Mediterranean, according can Bank and Trust ran above the legal limit established by to Italian magistrates. New York State law, became a prosecution witness in the The beneficiaries of Morgenthau's alleged coverup, still Morgenthau investigation, and went scot-free. the subject of several civil lawsuits in New York City, include At the time of its collapse in 1976, American Bank and a set of bankers and arms traffickers now under intense in­ Trust was the property of David Graiver, the Argentine vestigation in theEastern Mediterranean arms-and-dope case: banker subsequently exposed as the financier of both the • Lebanese financier Edmond SaCra, whose Republic Argentine terrorist organization, the , and the . National Bank in New York City helped Argentine under- right-wing generals controlled by the Italian Propaganda-2

52 National EIR December 28, 1982

© 1982 EIR News Service Inc. All Rights Reserved. Reproduction in whole or in part without permission strictly prohibited. Freemasonic lodge. Propaganda-2, Graiver's secret organi­ to be severe. ABT did not have sufficient assets against zation, was the gathering point for ex-Mussolini fascists and which to write off Samuels's $12 million .. .. Italian high nobility involved in illegal money flows and At this point, Argentine terrorist financier David narcotics traffic out of Italy. Its chief banker, Roberto Calvi Graiver walked into New York. on the arm of the of the Banco Ambrosiano, went bankrupt in May 1982, a chairman of the Republic National Bank, Theodore year after the Italian authorities raided P-2's headquarters Kheel, who brought Graiver to meet David Rocke­ and forced its chief, Italo-Argentine underworld figure Lido feller, Henry Kissinger, Lane Kirkland, among others. Gelli, into hiding until his recent capture by Swiss authori­ Graiver bought the bank, looted it blind, and disap­ ties. Calvi, found hanged under Blackfriars Bridge in Lon­ peared in a reputed plane crash in Mexico in August don, was a central figure in illegal arms and narcotics traffic; 197�although well-placed Israeli sources report that the Italian arms-and-dope network shut down at the end of Graiver is alive and living in Spain. But Graiver's the last month, Stipam, had its officein a Banco Ambrosiano role shows the American Bank and Trust to have been executive suite in Milan. a two-dimensional stage set, behind which were found But when David Graiver showed up in New York in 1975 the world's most notorious operators of illegal money, to take over American Bank and Trust, the $500 million bank covert arms traffic, and narcotics. was already a political time bomb. New York State Super­ intendent of Banks John Heimann, a former Warburg bank The strange history of ABT officer who later went on to become Comptroller of the Cur­ The ABT of the mid-1970s had its origin in the network rency under Jimmy Carter, had already sent a "cease and of banks spun out by the predecessor organization of 's desist" order to American Bank and Trust in September 1975, secret service branch Mossad, during the 194�-48 arms pro­ ordering the bank to stop funding Morgenthau' s political curement program.Israel's first finance minister, Pinhas Sa­ crony John Samuels. During the 1971-75 period, American pir, set up the "Centrade Group," a network of banks with Bank and Trust had made loans totaling $12 million to Sam­ headquarters in Switzerland at the Swiss-Israel Trade Bank uels, whose small empire in West Virginia coal became one in Geneva. Future ABT president Phillip Klutznick, then a pf the 'rags to riches' stories of the early 1970s. In fact, every leading figure in the "Sonnenborn Institute" group in New penny Samuels invested in his coal mines, or gave to Mor­ York which shipped illegal arms to the Israeli Haganah, genthau's 1974 campaign, was borrowed from American helped found the bank and later became chairman. Another Bank and Trust and its affiliates. Moreover, it was borrowed American founder was General Julius Klein, who firstspon­ illegally: under New York State law, a bank may lend no sored Henry Kissinger's World War II career in military more than 10 percent of its shareholders' capital to any single intelligence. Swiss-Israel Trade Bank's first president of customer. Legally, Samuels's limit would have been only U.S. subsidiaries was a "Sonnenborn Institute" veterannamed $2.5 million, 10 percent of the bank's $25 million capital; Saul Kagan, who had servedunder Klein in the U. S. military American Bank and Trust lent him ten times that amount. government in Germany 1945-48; Kagan's job had been the American Bank and Trust's largesse to Morgenthau' s collection and distribution of reparations payments to Jewish moneyman was sufficient to bankrupt the bank.Richard Kapp victims of the Nazis. Kagan, later the chairman of American reported in Barron's weekly magazine on Sept. 28, 1981: Bankand Trust, was one of two ABT officers who ultimately was indicted by Morgenthau for minor crimes. While the press was ballyhooing John Samuels "leap Swiss-Israel Trade Bank's sister organization in Switz­ - to riches," the price of coal was sliding back... . erland was the Banque de la Credit Internationale, headed Samuels' cash flow was fast drying to a trickle. If his by the diJector of the Mossad's logistics and arms-procure­ income was dropping precipitously, his obligations ment program, Hungarian refugee Tibor Rosenbaum. Ro­ weren't and Samuels had secured that debt with vir­ senbaum maintained a seat on tht; board of directors of the tually all his assets. The most tangible of the latter S�iss-Israel Trade Bank; but his other activities brought him was a cluster of coal mines in Pennsylvannia and West into the circuit of American mafia financier Meyer Lansky Virginia. But those properties on the market would and elements of the shattered Nazi movement. According to fetch only a small fraction of what ABT believed.... a 1967 Lifemagazine expose, Rosenbaum's bank became the By the end of the summer of 1975, the New York chief Swiss laundromat for the Lansky &yndicate. Life re­ Banking Department was wise to Samuels' true con­ ported that Rosenbaum's Banque de la Credit Internationale dition as well as to ABT's illiquidity. On Sept. 25, was on the receiving end of $10 million in illegal funds, the Banking Superintendent issued ABT's directors a laundered through the World Commerce Bank of Nassau, "cease and desist" order, the strongest action the state Grand Bahamas. The Nassau Bank was a joint venture of could take short of closing the bank ....' Lansky and several of his gambling-syndicate business part­ The Banking Department's order threw ABT's board into a state of ners. The World Commerce Bank's president was Lansky's panic; whatever it did, the bank's shaky condition accountant Alvin Malnick; another official of the bank was would surface and the impact on its equity was bound a Swiss national and Lansky courier, Sylvain Ferdman.

EIR December 28, 1982 National 53 Ferdman was simultaneously listed in BCl's directory as chain'ian; Abraham Feinberg, another "Sonnenb()rn'� veter­ "Chief Operations Officer" for the Rosenbaum bank. an, became a director, and Saul Kagan, Julius Klein's old Rosenbaum was meanwhile the Mossad station chief in lieutenant, was named president. An additional board mem­ Geneva, collaborating closely with Shaul Eisenberg, con­ ber was the New York representative of German financier currently the Mossad station chief in Vienna, according to Erich Warburg: Henry Simon Bloch. the Washington Post. Eisenberg ran a vast, quasi-legal arms ABT grew fast in two directions. Feinberg, a power in trading operation between Japan, Taiwan, Hong Kong, Is­ Brooklyn politics, brought future New York mayor Abe rael, and the Caribbean, finding time to run arms into Idi Beame, and Brooklyn DemocrAtic leader Meade Esposito Amin's Uganda and Qaddafi's Libya, while surveilling both onto the board. There is no evidence that they were aware of of them on behalf of several intelligence agencies, according the wrong-doing. Arlen Realty became a major customer, to the London New Statesman of Oct. 13, 1978. and Stanley Kreitman pf Arlen joined the board, later becom­ Rosenbaum's bank, brought down for unknown reasons ing president. New York City and state funds went into in­ in 1974, was the core of the dirtiest money-laundering oper­ terest-freedeposits at ABT, as well as the Carter campaign's ations in the 1970s, according to French journalist Jacques 1976 treasury. Derogy's 1980 book on the Israeli mafia. BernieCornfield of More important for the bank's growth, however, was the Investors Overseas Services, the most celebrated flight-cap­ . worldwide network of Sapir's and Rosenbaum's Centrade ital scam of the decade, nominally ran an internationalmutual group in Switzerland. The Swiss parent of the New York fund; in fact, DerOgy demonstrates, lOS was a branch of the bank opened officesin Mexico City, Uruguay, Panama, Col­ Banque de la Credit Internationale, the money-laundering ombia, Peru, and Brazil, soliciting flight capital for deposit operation fo�IOS funds. The L'Express journalist reported in New York. Centrade called this "vacuuming deposits"; it that illegal revenues in a diamonds-for-narcotics traffic based had been the model for Rosenbaum's direction of the world in South Africa ran its money through the Israeli director of network of Investors Overs¢as Services salesmen, and ABT Investors Overseas Services, Zwy Peer, who brought his applied it fresh to Ibero-America. illegal funds to Rosenbaum's bank for washing-rubbing Centrade officially relinquished control ot the bank to shoulders with Meyer Lansky's couriers, who frequently one of their associates in Ibero-America, Chilean financier doubled as Investors Overseas Services salesmen. Behind Jose Klein. Klein, who owned Chilean iron mines, was the diamond-dealer Peer, Derogy documented, stood ailOther principal financier of Chilean President Allende's predeces­ board member of Rosenbaum's BCI-the chairman of Bank sor, Eduardo Frei. In 1969 Klein sold out and moved to Leumi, Ernst Japhet, the current head of a family that had Geneva, purchasing American Bank and Trustfrom Centrade made its fortune during the 19th century Far East opium the following year. Despite the sale, ABT did not miss a beat; traffic. Leumi, the principal financierof the Israeli diamonds Klein maintained the same vacuuming operations, and the traffic and a major facility for laundering narcotics money, same management. Rosenbaum's partner Klutznick re­ in Derogy's account, had the last word in the American Bank mained chairman for several years after the sale and a board and Trust story: after the bank's failure, it cleaned up the member until the bitter end, yielding the chairlnanship en shards by purchasing the bank's remaining branches. route to another member of the old Centrade crowd, Abe According the 1978 Jeffrey Steinberg-David Goldman Feinberg. bestseller Dope, Inc., the Rosenbaum financial network were Klein, for reasons that have never been adequately ex­ also the financiersfor Permindex, the corporateentity which plained, picked up the unknown Texan John Samuels and New Orleans District Attorney Jim Garrison charged was a financed his brief rise to prominence. But the Samuels case front for the John F. Kennedy assassination, and to which shows clearly that nothing had changed after Swiss-Israel Italian authorities ascribed responsibility for the Aldo Moro Trade Bank sold ABT to Klein. Samuel's major financier assassination in 1978. French intelligence establisheQ that was the London metals trader Leonard Cohen, whose offices Permindex laundered $200,000 through Rosenbaum's BCI, were at Swiss-Israel Trade Bank in Geneva. Samuels' biggest paid out to Guy Bannister in New Orleans and other known investment with the proceeds of his coal sales. was his 1976 associates of Lee Harvey Oswald; all died shortly after Gar­ purchase, for $60 million, of Exchange National Bank in rison began his inquiry in 1966. Chicago-fromthe Recanati family of Israel Discount Bank. American Bank and Trust tumbled into this network in Shipowners and financiers whose origin dates back to Spain 1960, when Swiss-Israel Trade Bank of Geneva began look­ in the 14th century and Venice in the 16th, the Recanati own ing for a New York outlet. The American Trust, a small New the Israel Discount Bank, and are the principal financiers of York bank, had been founded in 1914 by Mexico's Swiss­ Israel's foreignarms sales. The Recanati also control, through owned Banamex and taken over by then-Governor Averell nominees, New York's Sterling National Bank, the official Harriman's campaign manager, John J. Reynolds, during the bank of the Anti-Defamation League of B'nai B'rith, and the 1950s. The Israeli Centrade group bought it the day after the subject of a February 1982 lawsuit by the Italian government, Kennedy assassination, Nov. 23, 1963. Klutznick, Rosen­ charging that Sterling National Bank conspired with jailed baum's partner in the Swiss-Israel Trade Bank, became financier Michele Sindona to loot the Banca Privata Italiana.

54 National EIR December 28, 1982 Their principal client is Shaul Eisenberg of Israel Aircraft under conditions of fierce competition between Westing­ Corporation. house and the Canadian nuclear industry. The Canadians hired the founder of the Israel Aircraft Corporation Shaul Enter Propaganda-2 Eisenberg, as their representative. Eisenberg won the con­ David Graiver's arrival in New York City merely folded tract for the "CANDU" reactor through the payment of a $5· additional strands of the international money laundry back million bribe to several Argentine military officers; his con­ into American Bank and Trust. duit was David Graiver. The 35-year-old Argentine banker was the son of real Not surprisingly, in the 1975-76 period David Graiver estate operator Juan Graiver, who according to one report decided that Argentina had become too hot, and moved to arrived in Argentina on the same tramp steamer that brought greener pastures, establishing a small bank in Belgium, Ban­ Jose Klein, then the owner of American Bank and Trust, as que pourL' Amerique du Sud. Graiver's own finances, shaky well as Juan Peron's economy minister of the 1970s, Jose after the 1976 coup, had been bailed out after the failure of Gelbard. The trioof Klein-Graiver-Gelbard maintained close his Uruguayan bank, Banque pour Ie Commerce Continen­ connections which were passed to David Graiver after Juan's tale in Montevideo; Israel's Bank Leumi, controlled by Tibor death. Gelbard brought the elder Graiver into the pre-Peron Rosenbaum's business partner Ernst Japhet, took the failed government as Undersecretary for Social Welfare in 1971, Uruguayan institution off Graiver's hands. and Graiver directed government deposits into a series of But as Barron's reporter Richard Karp described it in the small banks he had acquired-the beginning of the short­ cited review of ABT court papers: lived Graiver banking empire. The Peron movement's slush BAS in Belgium was not a bank at all, but merely a fund, the "Crusade of Justicialist Solidarity," was also de­ conduit for' laundering and stealing any funds depos­ posited in the Graiver banks. Graiver became majorityowner ited in it. To get money into BAS. Graiver conducted of the Peron newspaper La Opinion, then edited by Israeli a credit raid on ABT; as a result, after 10 months, Mossad agent Jacobo Timmerman. At the same time, Argen­ some $18 million of the New York bank's assets and tine mystic Lopez Rega, a close associate of Licio Gelli of credit were spirited to Belgium. To get additional the Propaganda-2 freemasonic lodge, became the dominant funds into BAS, he also diverted to Belgium, by means figure in the Peronist movement. Argentina became a center of a complicated subterfuge, upwards of $20 million for Italian tax evasion and revenues from Sicilian narcotics belonging to ABT's depositors. When Graiver van­ traffic, according to sources close to the Italian government ished in August 1976-supposedly in the crash of a prosecutors in the P-2 scandal, through Gelli's intermedia­ private plane in Mexico-at least $40 million disap-. tion with Lopez Rega. When Peron's P-2 widow Isabelita peared with him. A month later, when inv�stigators Peron could no longer maintain control over Argentina, , found no trace of the money, authorities in Belgium Graiver, according to sources close to his family, financed and the U.S. seized and closed both ABT and BAS. the coup that overthrew her in early 197,6. His principal beneficiaries were the subsequently-exposed leadership of As Karp documents the case in the cited article, the the P-2 cabal inside the Argentine military, including Ad- looting process had brought ABT to the brink of collapse . :miral Massera. This cabal conducted at least some of their by the end of May 1976. Morgenthau' s friend John Samuels meetings to plan the coup against Isabelita at American Bank hel�d Graiver keep the bank afloat between May and August and Trust's officesin New York, after Graiver had bought it. by "kiting" Graiver's checks: Samuels issued checks in mil­ At the same time, Graiver became banker to the Argen­ lion-dollar denomination to Graiver's shell, Banque pour tine terrorist organization, the Montoneros, who were sub­ l' Amerique du Sud, to Graiver, drawn on accounts at Bank­ sequently wiped out by the same P-2 right-wingers whom ers Trust and Irving Trust which had little or no money in Graiver worked with on the other side off the political street. them. Graiver "duly credited" the checks "to the BAS ac­ While Graiver was building his banking empire out of the count at ABT." The next day, Graiver remitted the same cash flowof the Peronist movement, according to the version amount from the BAS account at ABT back into Samuels's given out by family sources, his brother Isidoro was kid­ accounts. ABT was surviving day by day on the time delay, napped by the Montoneros. While negotiating Isidoro's $2 or "float," between the payment on and collection against million ransom, Graiver proposedthat they place theirfunds-­ Samuels's checks at major banks, which made the BAS the Montonero treasury then totalled $18 million-in the account at ABT appear to have several million dollars more Graiver banks. The story only came out when the Montoner­ than it really did. This lasted until Aug. 2,. when Graiver o's money man, "Dr. Paz," was arrested by a provincial failed to put $3.3 million back into Samuels's accounts. military governor; the latter, unsympathetic to the junta, re­ Samuels's checks bounced on Aug. 8, but Graiver had al­ leased the entire story of Graiver' s double-agent role between ready disappeared in what Israeli sources believe was a the terrorists and the P-2 junta. phony airplane crash between Acapulco and Mexico City. Graiver also played a special sort of role for Israeli intel­ By August 1976, an extraordinary state of affairs pre­ ligence. In 197�, Argentina ordered its first nuclear reactor vailed in New York banking. Franklin National Bank, bought

EIR December 28, 1982 . National 55 in 1971 by convicted P-2 moneyman Michele Sindona, had Bank and Trust's capital to BAS, along with minor related failed in September 1974. It turnedout that Sindona had spent criminal offenses. Of course, the fall guys, who left the the period between May 1974, when Franklin was known to courtroom with $20,000 fines,never had a motive to commit be on the brink of collapse, and September, when the Comp­ such a crime; the motives were erttirely on the side of the trollerof the Currency took it over, looting remaining Frank­ prosecution witnesses. lin assets through the aid of Banca Privata Italiana and Ster­ For reasons that he never explained, Morgenthauignored ling National Bank. massive documentation to his grand jury showing criminal fraud on the part of ABT's top management. The quality of Morgenthau covers up evidence ignored by Morgenthau's grand jury is illustrated It happened that Sterling National Bank was owned by by a legal brief presented by lawyer Steven Lowey in a the Recanati family of Israel Discount Bank. It happened that separate case filed in Federal Court in 1977, "Adato vs. John Samuels, co-beneficiarywith Graiver in the ABT scam, Kagan," on behalf of Mexican depositors whose "vacuumed bought the Exchange National Bank of Chicago from the deposits" had never been recorded on ABT's books. Al­ Recanati in 1976 for $60 million, making himself chairman though witnesses came forward to present evidence of crim­ of the board. inal fraud, Morgenthau refused to hear their testimony before It happened that Franklin National Bank's President, Paul his grand jury; he refused even to take depositions. The1977 Luftig, had a wife named Ida Luftig, who was head of the briefeven tracedthe transactionswithin ABT itself, showing international departmentof American Bank and Trust during, how the Mexican depositors' money was laundered into the the entire period of Graiver's looting operation via Belgium. Graiver BAS account, and spirited away to Belgium. The It happened that when Franklin National Bank failed, money, it showed, was dumped into a shell account of the Edmond Safra's Republic National Bank-whose Chairman "New Loring Co." at ABT, and ended up at BAS. Theodore Kheel had arranged Graiver's purchase of Ameri­ Most inexplicable to lawyers and law enforcement offi­ can Bank and Trust-purchasedthe internationaldepartment cers associated with the prosecution of the ABT case was of ABT, the American-Swiss Banking Corporation. Morgenthau's refusal to trace the estimated $45million that The entire app;rratusof dirty-money laundering had moved Graiver looted out of ABT to Belgium, and thence to Switz­ heavily into American banking, implicating the cited insti­ erland-a trail that might have led back to the dirty-money tutions, in the original Lansky-Rosenbaum-Comfeld scam. networks that created Graiver, ABT, and John Samuels. For the first time, U.S. law enforcement had cases of docu­ Ironically, Morgenthau had made his reputation as "Mr. mented fraud sufficient to shut down the entire apparatus. Clean," in a series of dirty money investigations, and took What D.A. Morgenthau did then remains a source of credit for the passage of the 1972 Bank Secrecy Act, which wonderment to everyone connected with the case. forced accounting for large cash deposits and other conven­ First, Morgenthau, the former U.S. Attorney for the iences of organized crime. In Congressional testimony in Southern District of New York, used all his political pull to 1969, just before the Nixon administration fired him, Mor­ force the federal authorities to leave the prosecution to him, genthau railed against foreign bankers enabling U.S. citizens although bank fraud is a federal crime. (Under similarI cir- to evade taxes. Handed the biggest bank fraud case of the cumstances, Michele Sindona was sentenced to 20-30 years 1970s-interlinked with every9ther bank fraud case of the in federal prison.) This pull apparently included help from 1970s-Morgenthau covered' his political contributors and ' Henry Kissinger's National Security Council, since Morgen­ political friends. thau was able to enlist the aid of the U.S. Secret Service­ It happens that Morgenthau, a member of the National which operates on direct White House orders-to pick up the Committee of the Anti-Defamation League of B'nai Brith, "black box" recording device from the aircraft in which was a colleague of Swiss-Israel Bank founder and ABT board Graiver supposedly died. member Philip Klutznick, a fellow national-committee mem­ Second, Morgenthau set up a secret grand jury, whose be ., and Chairman of the ADL's Executive Committee at the minutes remain sealed, indicting only four lower-level offi­ time the case was prosecuted. It also happens that Sindona's cers of the bank, namely Saul Kagan and three virtual clerks: collaborators at Sterling National Bank are the bankers to the Jean Louis Wolf of the international department, Torleaf ADL, holding all its accounts and investing all its money. Benestad, and Edmund Fleckenstein, ABT's Treasurer. Only It also happens that Barron's reporter Richard Karp, the Kagan and Wolf went to trial. Klutznick, Feinberg, Samuels, journalist who brought the ABT court papers to light, was Kheel, and the others who had run the looting operation in sitting at the bar at Sardi's restaurant in New York not long common with the conveniently-absent David Graiver, were ago, when he was approached by a stranger. "You don't never indicted. Morgenthau called them allas witnesses, and know me," the stranger told Karp, "but I have just been gave them immunity from prosecution! Morgenthau sup­ engaged as the public relations director for the Anti-Defa­ pressed the massive evidence of criminal bank fraud and mation League. I want to inform you that you are on their merely charged the two fall-guys with a minor regulatory watch list." violation, i.e., loaning more than 10 percent of American (Second installment: Morgenthau's personalfinances.)

56 National EIR December 28, 1982